Category ArchiveBonobos

Barneys New Yorkis closing its Upper West Side store store on Feb. 18, a company spokeswoman confirmed to Commercial Observer.

“Barneys New York has enjoyed serving the community on the Upper West Side for over a decade. We sincerely appreciate the loyalty of our customers, and we look forward to continuing to serve them at our Madison, Downtown and Brooklyn locations,” the spokeswoman emailed.

West Side Rag first reported the news on Feb. 2 based on information provided by a manager.

The roughly 10,000-square-foot clothing store, which is on the ground and lower levels at 2151 Broadway between West 75th and West 76th Streets, opened in 2004, according to retail broker Faith Hope Consolo of Douglas Elliman Real Estate, who represented the landlord in the original lease negotiations with Barneys. The space underwent a renovation in July 2013, which included rebranding it from a Co-op store—selling lower-price fashion—to a Barneys New York. (The company has converted Co-ops stores to Barneys New York shops.) The lease is slated to expire at the end of 2023, according to CoStar Group.

Once it shutters, there will be two remaining Barneys stores in Manhattan: one at 660 Madison Avenue between East 60th and East 61st Streets and one at 101 Seventh Avenue between West 16th and West 17th Streets.

“This is a big loss for the Upper West Side,” Consolo said. The deal was unique at the time as most retailers were focused on Columbus Avenue, but Barneys took a Broadway space.

Broker John Brod, a partner at ABS Partners Real Estate, said the news is of no surprise.

“Customers can go on line at Bonobos, UNTUCKit, Allbirds, Amazon, Suitsupply and manufacturers’ own online e-commerce store to purchase the same merchandise so the need for Barneys to have a brick-and-mortar presence has past,” Brod emailed. “Specifically, Barneys is a multi-brand retailer and as such the need for a second store in a secondary market becomes redundant in today’s retail and shopping environment. The issues are further challenged by the general state of retail in this area—note that Sephora has opted to downsize from their 2162 Broadway location—they passed on their right to renew. Moreover, Anthropology who was negotiating to replace Sephora here after many months of negotiation, decided not to proceed. Additionally Eastern Mountain Sports vacated this area [at 2152 Broadway] as well. The fact is there is a very limited demand for large flagships in both primary and secondary markets. Clearly the Upper West Side is a secondary market.”

The market and neighborhood combined to hurt Barneys.

“Barneys closing is a reflection of the current market,” said SCG Retail Partner David Firestein. “With that said, they were never right for the neighborhood, in the mid 70s. A better fit would have been closer to Lincoln Center, near Century 21.”

And the popularity of online food shopping has impacted the area, including Barneys.

“That stretch of Broadway has always been local, and much of its traffic from shoppers that live or work outside the market area was based on the food anchors—Citerella, Fairway and Zabars—all on the west side of Broadway in a seven-block stretch,” said Robin Abrams, a vice president at Eastern Consolidated. “Once it became possible to get fresh produce and a wide array of prepared foods at the various Whole Foods [stores], Fairway’s other locations and a variety of other competitors, the pedestrian traffic on Broadway diminished. Now the retailers on Broadway must be strong to cater to local traffic, and even stronger if they are to pull from a broader customer base.”

The year 2017 was one of the newsiest and noisiest retail years on record. It will be remembered as the year retail evolved and changed forever. We will remember it as the year that experiential retail moved to the forefront and brick-and-mortar brands finally embraced omnichannel strategies in a meaningful way. While media reports of a “retail-pocalypse” grabbed the headlines, online stores—Everlane, M.Gemi and Rent the Runway to name a few—were busy opening more physical locations than ever before.

It was the year retailers shifted strategies and realized that consumer engagement must come from multiple touch points. Megamergers and strategic mergers changed the landscape with Walmart’s $310 million acquisition of Bonobos and Amazon’s purchase of Whole Foods Market for $13.7 billion—the latter representing a watershed moment for the retail industry. It is barely 2018 and already there are rumors of new brick-and-mortar targets for Amazon. In general, the “Amazon effect” finally forced the industry to adapt to the needs of the modern consumer and brick-and-mortar to embrace omnichannel.

So, what will take hold in 2018? Here are eight major themes and trends that will continue to transform the retail landscape:

International brands will continue to touch down in the U.S.: We expect exciting international brands to continue growing their presence stateside. In New York City last year we witnessed several new overseas retailers like Sneakersnstuff (Sweden), Innisfree and Line Friends (both from Korea) stake a claim in the market. The U.S. remains a highly prestigious key market and international brands will continue to flock to our largest urban markets to grow and attract new consumers. Asian brands, especially those from South Korea and Japan, are poised for another year of strong retail expansion and brand building. K-Beauty (referring to skin care products from Korea) continues to flourish overseas, buoying a still-strong beauty and cosmetics retail segment in the U.S. I also expect to see more fashion from Down Under as brands from both Australia and New Zealand have recently touched down in Manhattan. Aussie retailer Ksubi opened shop in Soho in 2017, while fellow Australian outfitter Scalan Theodore found a home on Prince Street. Expect more to follow. And of course, European brands will continue to be popular in the U.S.

Market correction: We finally saw much-needed flexibility from property owners who moved to establish new rent thresholds that both landlords and tenants could accept. New opportunities were created in 2017 for emerging, entrepreneurial retailers who entered the market at a lower cost of entry, and I expect price adjustments and more creative deals to continue well into 2018.

The “theme-park-ification” of retail will continue: Global brands like National Geographic, Disney, Mattel, Lionsgate and DreamWorks will continue to take advantage of vacant retail space, leverage their intellectual property and attract visitors with new engaging technologies and social media-friendly landscapes. “Retail-tainment” won’t be limited to big-box spaces in 2018; companies are harnessing the power of Instagram to create small-scale museums and “Instagamable” theme parks in boutique spaces.

Seasonal sales are so 2017: Retailers won’t be relying as much on one-time sales events as they did in the past. As evidenced by this last holiday selling season, the seasonal and event-shopping mentality is flattening out. In 2018, we will see more event-driven and experiential retailing year round as events like Black Friday become less important.

Food, fitness and fun: Clusters of health and wellness-oriented retail (athleisure, juice shops and fast casual with menus showcasing traceable ingredients) will continue to draw shoppers to street retail corridors, lifestyle centers, malls and live-work-play developments in 2018. In fact, fitness centers are one of the key categories and have become attractive, sustainable anchor tenants for repositioned malls.

The still-great American mall: In 2018, developers and mall owners will be working overtime to unveil updated mall footprints. Expect to see fewer department stores and big-box anchors, and more food purveyors, fitness studios, medical uses and converted residential and office units. Malls will be reimagining their food options into attractive quick dining options, making way for more food halls that are an experience in and of themselves. Mall food courts will be getting a facelift for the new year and changing their name in the process. Food halls are here to stay. Keep an eye out for more celebrity chef-driven concepts, as they look to leverage their name brand and star power to start new ventures.

Retail gets snackable: It is no secret that we Americans like to snack. This year will see an increase in small artisanal-style purveyors of snacks and treats like handmade ice cream, gourmet doughnuts and housemade pickles, just to name a few. In 2018, the more detail and care taken in creating food, the more popular these smaller locations will become.

There is little doubt that it is an exciting time to be in the retail real estate industry, and it’s clear that we have already witnessed one of the biggest retail transformations of our time. I am excited to see retail’s next act continue as 2018 unfolds.

Retail real estate pioneer and investor Robert K. Futterman is chairman and chief executive officer of RKF, a leading retail real estate brokerage firm in the U.S.

Traditionally, short-term leases (a.k.a., pop-ups) have been seasonal: Halloween costume shops, Christmas stores and sample sales have been a staple of this retail segment for years. But the advent of experimental fashion pop-ups and influencer events have paved the way for a broader pop-up retail strategy, which is looking better to both landlords and tenants.

These “pop-to-perm” strategies allow for new concepts, online brands to try out bricks and mortar and even established companies looking to expand into a new market.

For new brands, small businesses and emerging concepts pop-ups are an exciting opportunity to test the waters without committing to a long-term lease. There are no high buildout costs, co-tenancy clauses or penalties. Landlords, for their part, reap financial benefits of collecting rent and eliminating vacant storefront space at the base of a building.

Popping-up everywhere

According to a recent national study from Chicago-based marketing firm PopUp Republic, the pop-up industry has grown impressively over the past decade to the point today where total annual sales have reached $50 billion. It wasn’t so long ago that Target dropped a concept pop-up at West 42nd Street and Avenue of the Americas. At the time, some questioned the strategy for such a large retailer. They were just testing the waters back then, and apparently, they liked the temperature because now you can find Target stores throughout Manhattan.

Interestingly, there is a psychological component to the pop-up. There have been several consumer-psychology studies in recent years suggesting that pop-ups stimulate part of a consumer’s brain that enjoys new experiences. Aside from the immediate practical implications (more foot traffic and increased sales), the findings also support the effectiveness of pop-up retail as a lasting experiential marketing strategy.

A perfect example is trendy eyewear purveyor Privé Revaux. The inexpensive celebrity favorite sunglass brand—whose business partners include Hollywood luminaries Jamie Foxx, Hailee Steinfeld, Ashley Benson and Jeremy Piven—recently opted for a short-term lease at 120 West 42 Street for its first brick-and-mortar presence. The new store blends all the best elements of an experiential pop-up, including a graffiti-covered New York City subway car that was left by a previous tenant and cloud installation. Expectations, the company said, are to extend their stay after evaluating the amount of traffic the store generates. Because a pop-up tenancy can last from one day to one year or more, the idea of planting a flag with only a short-term commitment can be extremely attractive.

Made to stay: Brands extending their stay after successful debuts

Since 2015, we’ve seen an increase in commercial leases of three years or fewer, as landlords have recognized the value in negotiating for the shorter term as the market stabilizes. One particularly interesting development contributing to the shortening of leases is the steady stream of online brands seeking a brick-and-mortar presence.

To me, pop-up doesn’t always have to be experimental and edgy and on a shoestring budget. And nobody exemplifies that spirit more than The RealReal. Following in the footsteps of other online only businesses like Bonobos, Warby Parker, Birchbox and even Amazon, The RealReal is expanding from e-commerce into brick-and-mortar retail in a mature way.

While the San Francisco-based company—which offers authenticated, high-end resale items online for women, men and the home—has been busy in recent years rounding up more than $150 million in funding for its online business, it has also launched a brick-and- mortar strategy.

Almost one year after opening its first pop-up in Manhattan during last holiday shopping season—which recorded a reported $2 million in revenue in just two weeks—the luxury consignment website earlier this month opened its first permanent retail space on Wooster Street.

Although it didn’t migrate from the online world to the physical, multibrand boutique Northern Grade also recently made the jump from pop-to-perm. After several years as a roving pop-up shop offering indie fashion and décor, the brand initially took a short-term option at 203 Front Street and signed a six-month lease in the Seaport District. Today, it remains a fixture in the Seaport’s rejuvenated retail scene.

In fact, there are so many successful examples of pop-to-perm in recent years we could fill the pages of this issue. Once brands have found their footing, they seek their own long-term spaces, where they can create opportunities that will bond them with shoppers. Smart brands know the value of providing excellent customer service in a memorable, enjoyable and stimulating setting, one that will prompt shoppers to make a habit of returning. But until then, putting products directly into shoppers’ hands at a pop-up or in a store with a short-term lease is an important way for brands to launch an omnichannel approach to retail.

Retail real estate pioneer and investor Robert K. Futterman is Chairman and chief executive officer of RKF, a leading retail real estate brokerage firm in the U.S.

Twenty years ago this month, Jeff Bezos took Amazon—the online book retailer he started up in his garage in Bellevue, Wash., in 1994—public with an $54 million initial offering on the NASDAQ stock exchange.

The IPO valued Amazon at $438 million. While Bezos would subsequently have to steer the company through investor concerns about its profitability (Amazon wouldn’t turn a quarterly profit until 2001) as well as the dot-com bubble’s eventual collapse, Amazon would persevere.

Today, you can forget about that $438 million valuation; Amazon’s market capitalization is approaching $460 billion, with its growth having accelerated in recent years thanks to its dominance in the increasingly influential e-commerce sphere it helped revolutionize. The company has long since outgrown the label of online bookseller, with loyal customers turning to Amazon for everything from electronics and appliances to clothing and furniture.

Along the way, Amazon—which accounted for a remarkable 43 percent of all online sales in the U.S. in 2016, according to a recent report by e-commerce data firm Slice Intelligence—has helped bring about an existential crisis of sorts in the traditional, brick-and-mortar retail sector.

As consumers have drifted toward the convenience of online shopping, retail chains dealing in products from shoes, like Payless, to electronics, like RadioShack, have drifted into bankruptcy. Department stores like Macy’s and J.C. Penney and big-box retailers like Sears and Kmart (both owned by Sears Holdings) have been forced to shutter hundreds of stores across the country, and even higher-end brands like Polo Ralph Lauren—which announced in April that it would close its flagship Fifth Avenue location, despite still being on the hook for $70,000 per day in rent—have vacated prime brick-and-mortar real estate.

By early April, nearly 2,900 physical retail store closings had been announced across the U.S. in 2017, according to Credit Suisse, with closings on pace to exceed 8,600 over the course of the entire year—a number well above the 6,200 locations that were shuttered in 2008, during the height of the Great Recession.

It is a trend that has forced retailers to adapt or die. Last month, it was reported that Wal-Mart was in talks to acquire online men’s apparel retailer Bonobos for around $300 million. That would follow similar recent ventures into the e-commerce space by Wal-Mart, which last year acquired Jet.com for $3.3 billion and picked up outdoor apparel website Moosejaw for $51 million in February.

The irony, then, is that just as Amazon’s business model has forced about a recalibration of the entire retail industry, so has Bezos’ company sought to venture into the brick-and-mortar space itself via an ambitious, multi-pronged approach to physical retail locations.

Since opening its first bookstore in Seattle in 2015, Amazon has opened an additional five stores in markets including Portland, San Diego, Chicago and the suburbs of Boston—venturing into a market that it helped annihilate, putting bookstores like Borders out of business in the process. The company has announced plans for another six stores across the country, including two in New York: one at Related Companies’ Shops at Columbus Circle in Midtown and another at Vornado Realty Trust’s 7 West 34th Street, across from the Empire State Building.

Amazon Books, the online e-commerce giant’s first brick-and-mortar book store, opened in Seattle in 2015. Photo: Stephen Brashear/Getty Images

In addition, it emerged last year that Amazon plans to significantly expand its pop-up retail presence at malls and other shopping locations across the country, with as many as 100 kiosks and small-footprint spaces expected to be open by the end of this year (Amazon had only around 16 such popups open as of last summer). The stores allow the company to directly peddle its electronic products, like the Kindle e-reader and the voice-interactive Echo “smart speaker,” to consumers.

Meanwhile, in Seattle, Amazon continues to pilot its Amazon Go convenience store concept, a grab-and-go store using sensor technology allowing customers to buy snacks, beverages and other goods without having to go through checkout lines. And 10 years after launching AmazonFresh, its grocery delivery service now active in around 20 markets in the U.S. and Europe, Amazon has sought to further grow the platform via AmazonFresh Pickup, which is being piloted at two locations in Seattle and seeks to cut delivery costs in the already low-margin grocery business by enabling customers to pick up their orders on-demand.

Most of these physical retail initiatives have launched or been announced over the course of the last year, and they signal a tangible shift toward brick-and-mortar operations that promise to further grow Amazon’s influence in the current retail climate. However, they still represent a mere fraction of the company’s overall business, and questions remain over their effectiveness as a business strategy.

“I think there’s a wait-and-see approach; on the surface, it does seem counterintuitive to how they’ve built up their business, which is bypassing stores and getting a wide selection of products delivered to [the customer’s] door,” R.J. Hottovy, a Morningstar analyst covering the retail, restaurant and ecommerce sectors, said of Amazon’s brick-and-mortar initiatives.

Hottovy added, however, that many facets of the company’s physical retail operations are “complementary” to Amazon’s business model. The bookstores, for instance, are perceived as a way to drive Amazon Prime memberships, Hottovy said, since Prime members get reduced prices on the books and products available. Like the pop-up stores, the bookstores also create another platform for Amazon to spotlight and sell its electronics products directly to consumers.

Amazon has also sought to bring the hallmarks of its online experience—convenience and personalization—to its brick-and-mortar offerings, further separating itself from traditional retailers whose business model it has torn up.

“I’ve been asked for 20 years, ‘Will you guys ever open physical stores?’ ” Bezos told Fast Company last year. “And I’ve answered pretty much the same way the whole time, which is that we will if we have a differentiated idea…It can’t be a ‘me too’ offering, because the physical world is so well-served already.” (Amazon declined to comment for this article.)

Barbara Kahn, the director of the Jay H. Baker Retailing Center at the Wharton School of the University of Pennsylvania, told Commercial Observer that she had recently visited both Amazon’s bookstore in Seattle and its Amazon Go pilot location and was struck by the extent to which the company seeks to deploy technology to provide a personalized, “frictionless” consumer experience.

“From a retail point of view, the merchandizing isn’t what’s driving it,” Kahn said. She noted how prices are not listed on the books sold at Amazon’s bookstores; rather, customers are able to scan the books (which face cover outward on the shelves, rather than spine out as in most traditional bookstores) with an Amazon app on their phones to receive information on the product.

“You not only get information about the book but also the price they’re going to charge you,” she said. “And they get all sorts of information that they can use.” Kahn speculated that Amazon would be able to use this data—the specific titles, authors and genres that customers browse through—to “calibrate what price they’re going to charge you” for specific items.

Hottovy echoed that Amazon’s wealth of customer information and ability to predict consumer preferences is part of the “end game” of every aspect of its retail operations—and one that will continue to give it an advantage on the traditional brick-and-mortar retail sector for years to come. “That [data] is going to be something nobody else has access to,” he said. “That’s clearly part of the design of the bookstores.”

The Amazon Go convenience store in Seattle. Photo: Wikimedia Commons

Amazon Go, meanwhile, remains in the pilot stage at its solitary location in Seattle, despite plans to open the store to the public this year and expand via locations in other markets. That delay has been a consequence of technical issues related to the store’s sensor technology—which is supposed to automatically detect the items customers pick up off the shelves, allowing them to leave the store without having to go through a checkout process. (In March, The Wall Street Journal reported that the technology was experiencing difficulties when more than 20 people were in the store.)

Of course, Amazon is far from the only online retailer to have expanded into the physical world in recent years with the likes of Bonobos and eyeglasses designer Warby Parker, to name only a few, among the companies that have parlayed their e-commerce success into brick-and-mortar locations. Many of those brands have already seen the strategy pay off—and in perhaps unexpected ways.

“When I’ve talked to other clicks-to-bricks retailers, almost all of them have told me the same thing—that when they open a store in an area, their actual e-commerce [sales] in the same area shoots up 15 to 20 percent,” Garrick Brown, Cushman & Wakefield’s director of retail research for the Americas, told CO. “The physical store becomes the embassy of their brand.”

Physical locations also assist online retailers with an easier, more cost-effective way of dealing with merchandise returns and shipping those returns in bulk—a method that Amazon, with its business-wide emphasis on customer service at the expense of margin, is anticipated to deploy at its own locations in the coming years.

Brown noted that Amazon is entering the brick-and-mortar space at an opportune time from a real estate perspective, with the company able to capitalize on the rising vacancies and declining taking rents that its success has helped bring upon the market.

“They would get great real estate deals right now, especially with all the [store] closures,” he said. “Now suddenly, we have contraction from a lot of apparel [retailers] and markets where restaurants are struggling to make it. Vacancy is ticking up, and on a cyclical basis if you’re going to make a move, now is the time to make deals.”

Thus far, Amazon has shown a desire to open locations in high-traffic locations in close proximity to transit hubs and a relatively affluent customer base. James Famularo, a principal and senior director of retail leasing at Eastern Consolidated, noted that Amazon’s two announced New York bookstores to date, at Columbus Circle and West 34th Street, take advantage of heavy tourist and commuter traffic, respectively.

Famularo said that he and his team at Eastern have shown several retail locations around New York to Amazon on behalf of their own clients, and he echoed the widely acknowledged sentiment of the company as “tight-lipped” operators who are reluctant to give away any indication of their next move.

“You’ve got to give it to them: They’re aggressive,” he said, noting that retail landlords are largely more than receptive to whatever concepts Amazon may throw their way. “Nowadays, with the uneasiness of Ralph Lauren turning in the keys [at 711 Fifth Avenue], I think people are testing out different markets. And landlords won’t say no to the money.”’

AmazonFresh has had a slightly rockier road to market share. Amazon has had to grapple with logistical and economic challenges associated with grocery delivery—notably the “last mile,” as the transportation of goods from a local hub to the actual consumer is known in supply chain jargon—as well as customer reluctance associated with the psychology of buying food without seeing it first.

Jeff Bezos.

Cushman & Wakefield’s Brown noted that, while Amazon’s ambitious expansion of its fulfillment centers in recent years means that there’s now an Amazon warehouse “on the outskirt of every major metro area in America,” that infrastructure doesn’t necessarily offer itself to AmazonFresh.

“These [warehouses] are 40, 50 miles outside of city limits; you can’t deliver groceries from there,” he said. “You’re looking at your [food] distribution hub being within a one- to two-mile radius, at most.” (Brown did cite the view that Bezos’ 2013 acquisition of the The Washington Post was at least partially motivated by the major daily newspaper’s expansive distribution network. “When they rolled out AmazonFresh in the Baltimore market [in 2015], they used The Washington Post distribution chain that was already in place [to deliver],” he said. “He did not just buy a newspaper; he bought trucks.”)

AmazonFresh Pickup, which was announced in March, is one way the company is seeking to work around that challenge.

“What [Amazon wants] to do to be efficient is to have the consumer take control of that last mile,” Kahn said. “If you can make it convenient for the customer to pick up the groceries, then they’re handling the last mile.”

There is also the possibility that, rather than looking at hard-to-find industrial properties in urban centers that it could use as food distribution hubs, Amazon instead looks at smaller retail locations—similar to Amazon Go—as a means of addressing the obstacles associated with the AmazonFresh delivery model.

“When I look at that [Amazon Go] convenience store they opened in Seattle, I ask myself, ‘Does Jeff Bezos want to sell slurpees?’ ” Brown said. “Instead of looking for an 80,000-square-foot warehouse that does not exist in the urban core, what’s readily available? There’s plenty of small retail space.

“This could be the way that they really ramp up the growth of AmazonFresh,” he added. “I’m not surprised if we’re seeing hundreds of these Amazon food and convenience stores popping up. Of course, they’ll have the benefit of being brick-and-mortar [stores], but the real goal would be to boost their delivery of AmazonFresh.”

Whatever direction Amazon ends up going in with its real estate, virtually no one expects that Bezos’ appetite for expansion is sated. In March, TheNew York Times reported that Amazon is exploring the idea of “showcase” stores specializing in furniture, appliances and other home merchandise that customers are usually reluctant to buy online without seeing in person first.

The Times also reported that Amazon has been working on a venture, known internally as “Project Everest,” that would see it open brick-and-mortar grocery stores in India—a massive, underserved market. And just this month, it was reported that Amazon is getting increasingly serious about long-gestating plans to get into the pharmacy market and compete with the likes of CVS, Rite Aid and Walgreens.

“It’s at the point where it’s clear, based on the number of closings in the retail space just this year, that Amazon is in a good position,” Hottovy said of Amazon’s physical retail operations. “Now is the time to take it to the next step. If done right, it’s a way to make it an extension of the online platform.”

After a wildly successful first two decades as a public company, no one is certain what the next two decades will bring for Amazon. But should it become the world’s first trillion dollar company—as some have suggested is Bezos’ goal—it would be in no small part due to the fact that it pivoted at a critical moment and conquered both the internet and brick-and-mortar retail simultaneously.